Starting the new with some extracts from the old....Trading Discipline
As some of you may have read on my Twitter, this morning I accidentally deleted all of my old posts while doing some spring cleaning on the blog. With many thanks to "edwardsmatt" I have been able to recover some posts. Thank you!
I'm going to take advantage of the clean slate by reposting some of the older posts that might hopefully still be of some interest to readers. This first one covers my thoughts on what I believe is the single most important key to success in trading....DISCIPLINE. So here it is:
Fundamental or technical analysis, short or long time frame, mechanical or discretionary. There are countless different ways to trade, all with the potential of success, provided you can develop one skill - DISCIPLINE. A trader's ability to become and remain successful is pretty much dependant on it......
I'm not sure that there are any short cuts to gaining this magical ability, it's a habit that you need to practice over and over in your trades until it becomes an ingrained part of your trading psyche.
What is discipline in trading? Well of course the obvious one is cutting losses early. Protecting your capital is the key to staying in the game. When you enter a trade, and it doesn't perform as you had anticipated, once it hits your stop, cut it..you were wrong, accept it and get out. Losses are part of our expenses of running a business. Keep them down!
Discipline should also extend to position sizing, trade frequency, the reason for entering a trade, and even pre market preparation (scanning charts, setting alerts, etc).
Once you've decided how you are going to trade, try to stick to it. Trade the style that you have decided suits your personality and situation, don't start trying to instantly emulate others just because they seem to be doing better than you. Evolve your trading style and try new things, but do it in a discipline and structured manner.
As you start on this journey, start small and grow. Maybe set targets to earn yourself the right to trade larger positions once you've shown consistent success and discipline. Don't let greed or jealousy cloud your judgment.
In the past I've found that I could be very disciplined for a long period of time, and then all of a sudden it deserts me, for what at the time seemed to be for no logical reason. But many things can and do cause a loss of discipline:
* Environmental distraction - crying kids, renovations, computer problems
* Fatigue / mental overload / boredom
* Overconfidence / loss of confidence
* Personality traits / trading beyond your ability / trading a style that doesn't suit your personality.
If you wake up and find that your discipline has taken a short break, first try and determine the cause. If you can establish and accept the cause, you should find it much easier to eradicate it.
But in the meantime here are a few things you could try until your discipline returns:
* Trade smaller positions with tight stops
* Trade less frequently
* Only enter trades that meet the legitimate conditions of your trading style.
* Keep a trading log. Make notes on every trade, especially those that were unsuccessful. See if you can identify a pattern in your larger losses.
* Lock in some small wins to give your self confidence a boost.
Hopefully you'll soon be back on the long, straight, disciplined road again in no time. The road to success.
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